Diversion of income at source excludes separately collected charity surcharge from taxable income

Surcharge collected separately on admission tickets for local charities was treated as diverted at source, not as taxable income of the assessee. The levy was imposed under a resolution for a specific charitable purpose and was not part of the admission price; it was impressed with an obligation in the nature of trust for charitable application. Applying the test whether the amount ever reached the assessee as income, the receipt was held to be diverted before accrual. The distinction between diversion of income at source and application of income after receipt supported exclusion of the surcharge from taxable income.

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Issues: Whether surcharge collected on admission tickets for local charities formed part of the assessee's taxable income or was diverted before it reached the assessee as income.

Analysis: The surcharge was levied pursuant to a resolution for the specific purpose of local charities and was collected separately from the admission fee. The payment was not part of the price of admission but was impressed with an obligation in the nature of trust for charitable application. Applying the test whether the amount in truth reached the assessee as income, the receipt was found to be diverted at source by the nature of the obligation and never became part of the assessee's income. The distinction between diversion of income before receipt and application of income after receipt supported exclusion of the surcharge from taxable income.

Conclusion: The surcharge receipts were not includible in the assessee's taxable income and the question was answered in favour of the assessee.

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